Binary Options Hedging Strategy


There are many different strategies which can be adopted when attempting to consistently make money from binary trading. Although it is relatively easy to look for market trends and purchase trades based on the market trend, it is not sufficient to ensure consistent success. To generate a good rate of return it is essential to understand the market and use several strategies to assist you in getting the right result.

The binary option hedging strategy is designed to reduce the risk of placing losing trades by hedging your bets and using put options, as well as call options to create the right trading environment. In essence the aim is to protect one investment by undertaking a second trade which will act as an insurance policy for the first trade. In doing so you will be able to guarantee yourself a profit; you simply need to make sure that this is more than the cost of investing this way. Whilst it is possible to use the binary option hedging strategy on all types of binary trades it is especially good trading in currencies. In effect you are relocating the risk usually associated with a trade to place it above the normal stop zone. At first it may seem complicated, but it is, in fact, very simple to understand and use the binary option hedging strategy;

The Principles

The first stage of this tactic involves studying the market and deciding which direction your asset is likely to move in. You can use general trends or a more sophisticated approach such as the Bollinger bands. Once you have decide upon your asset and the direction it is likely to move in you need to calculate the cost of the trade versus the return; you will then know your expected profit and costs. To ensure your money is not at risk you then need to place a trade which goes in the opposite direction. The profit on either trade must be greater than the cost of both trades; this will ensure you end up in the money regardless of which trade is successful.

It is important to understand that this is not a guarantee of a successful trade; it is possible for the asset to move too far in one direction or not far enough to warrant the expected profit and costs. Although it is not a foolproof method of successfully trading it does dramatically reduce the risks associated with binary trading.

It may be easier to understand how this concept works by following this example:

You decide to invest $250 in a trade which is due to expire in one hour and the asset must be above the price of $10 at the end of the trade. You will be happy to see that after just twenty minutes the price has already exceeded the required amount. Hopefully the price will hold or increase, but you may be worried that it will drop at the last moment costing you your profit. To protect you initial investment you will need to purchase a second trade on the same asset. In this one you will specify that the asset must reach a price below $10; this will be a safeguard and provide enough profit to cancel out the cost of both trades. Should the price continue you to rise or remain steady, you will earn the agreed rate of return and created a profit. If the price suddenly drops you will have a successful second trade which will cover the costs of both your trades; leaving you free to start trading again.

Choosing to utilize a binary options hedging strategy will help you to reduce the risks associated with a rapidly changing marketplace.

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